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Call to lower VAT in Northern Ireland tourism sector

Northern Ireland MPs have called for a reduction in VAT on the hospitality and tourism sector here to help save and create jobs and increase investment.

A motion tabled by the SDLP's Margaret Ritchie in Westminster has called for recognition of the difficulties faced by restaurants and pubs in the region which pay 20% VAT – the third highest rate in Europe – compared to the 9% paid by firms in the Republic of Ireland.

Up to 13 EU member states, including the Republic of Ireland, have introduced a reduced rate of VAT within their tourism and hospitality sectors for hotels, restaurants and pubs, which have impacted positively on that sector.

One report has suggested that a VAT reduction to 5% here could see the number of jobs within hotels grow by 40% by 2020.

The motion has further called on the Chancellor of the Exchequer to introduce similar sector-specific VAT reduction measures to help businesses in the UK in a bid to encourage growth, support job creation and generate investment for local businesses.

Sammy Wilson MP has also backed the motion.

"A reduction in VAT rates for our pubs, restaurants and hotels is something I have been in support of since my time as finance minister in Northern Ireland," he said. "I will continue to lobby for this reduction at Westminster so that businesses in Northern Ireland are given a fighting chance to stay afloat and compete with their counterparts in the Republic of Ireland."

Trade bodies representing the pub and hotel sectors have welcomed the move.

Chief executive of Pubs of Ulster Colin Neill (right) said it is extremely hard for businesses in Northern Ireland with a VAT rate of 20% to compete with pubs and restaurants in the Republic who benefit from a VAT rate that has been reduced from 13.5% to 9%.

"The Republic of Ireland currently has a competitive advantage over Northern Ireland and has succeeded in attracting more foreign visitors and increasing domestic tourism, as well as creating over 6,000 additional jobs in the process," he said.

"We would call on the chancellor to look at making the same sector-specific reduction so that it can compete with the Republic on a level footing and claim a greater share of island-wide tourism."

Janie Gault, chief executive of the Northern Ireland Hotels Federation, said that the current VAT rate is a barrier to growth. She said that the high rate of VAT in Northern Ireland translates into hundreds of millions of potential lost earnings for the region.

"The UK rate is the third highest in Europe and makes our product much less competitive," she said.

"The issue for Northern Ireland is exacerbated by the promotion of Ireland as a one-island destination in overseas markets.

"The rate of VAT in the Republic of Ireland is 9%, some 11% lower, and this invisible tax is not seen by tourists.

"The majority of destinations in the EU note the high labour costs within the tourism and hospitality sectors and apply a reduced VAT rate to stimulate growth and ensure a vibrant tourism industry.

"The NIHF in its report, Tourism 2020, has shown that a VAT reduction could see the number of jobs within hotels, those directly and indirectly associated with them, grow by 40% by 2020 on the basis of a VAT reduction to 5%."

Northern Ireland has 139 hotels, with just under 8,000 bedrooms in total.

Figures from the Republic of Ireland show that their VAT reduction of 4% since 2011 has produced 6,500 new jobs and saved 31,000 jobs.

Why both industries need a reduction in rates to prosper

Q Why does the tourism and pub trade industry deserve to pay lower VAT?

A Both Northern Ireland and the Republic are marketed by Tourism Ireland on an international basis, yet the difference in VAT rates between the two regions for the likes of hotels is 11%; in the former VAT stands at 20%, in the latter hotels are charged at only 9%. That, according to the Northern Ireland Hotels Federation (NIHF) makes competing with hotels in the Republic extremely difficult. It's the same for the pub trade, where a pint faces higher taxes south of the border.

Q Why does the hospitality and tourism trade matter?

A Because both contribute an increasing amount to the Northern Ireland economy. For example, it's estimated the tourism industry here brings in £1.5bn a year, nearly 5% of annual GDP. Total spend from overseas visitors to Northern Ireland is nearly £420m, while £70m is spent annually by visitors from the Republic. The licensed trade is also a vital part of the economy employing 35,000 people and contributing £1bn annually. Around 80% of all tourists are said to visit a pub and around 70% enjoy eating in one.

Q What do they want?

A A drop in VAT in Northern Ireland to at least the same as in the Republic, at 11%. The NIHF wants VAT dropped to 5%.

Q What would a VAT cut do for the economy here?

A A lot. The NIHF said it "is the single biggest game-changer for the industry". It reckons the number of jobs in the industry would climb to 14,900 by 2020, from 10,700 in 2012; output, or GVA, would climb to £405m from £250m, and wages would climb to £225m from £161m.

Sector has strong growth potential, writes Glenn Roberts

Anything which allows our tourism and hospitality sector to increase its competitiveness should be welcomed with open arms.

It has long been recognised that this sector has strong potential for growth.

As a product, the tourism and hospitality industry has witnessed considerable investment in recent years.

A reduced VAT rate would provide a valuable dynamic for maximising the return on that investment.

Also, in doing this, it could create jobs.

Similarly, the removal of, or at least a reduction in air passenger duty, would again give the sector an opportunity to expand as it would reduce the competitive advantage currently held by Dublin airport.

That's an ongoing argument, but lowering VAT would be a great start.

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